Analysis: Cutting a Tax the State Does Not Levy

Analysis: Cutting a Tax the State Does Not Levy

The state of Texas does not levy a property tax, but state lawmakers would like to lower property tax bills anyway — a quest that could take them into school finance or into relief for some taxpayers at the expense of others.

Somewhere, in their town hall meetings and visits with constituents, in their political campaign polling, or by watching their tax bills, Texas politicians are starting to hear a lot about property tax relief.

Residents of other states have income taxes and other levies to gripe about. Texas state government relies on sales taxes for the biggest share of its revenue, while school districts, cities, counties and other local governments depend on property taxes. That dependence makes increases in property taxes a political matter that reaches the halls of state government — lawmakers who do not set property tax rates.

It is possible for a government that does not levy property taxes to lower them, but it can be complicated.

Years ago, reformers, prodded by angry taxpayers with voter registration cards, added a ban on a state property tax in the constitution. But local governments and school districts were not included, and the fine distinctions over which government is taxing them is lost on many Texans. They do not care — they just want relief.

Politicians of all stripes are responding to that, which is why state Sen. Dan Patrick, R-Houston, has promised to lower property taxes if Texans elect him lieutenant governor. And it is why state Sen. Kirk Watson, D-Austin, has unveiled a set of property tax proposals that could, if enacted, lower amounts paid by owners of residential properties.

While state officials cannot directly cut the rates paid by property owners, they can fiddle with them. One way is to increase state spending on public education in a way that allows school districts to lower their spending and, by doing so, to lower their local property tax rates.

That has proved to be politically unrewarding. State officials cannot guarantee any savings will be passed along to taxpayers, and even when they are, the political credit goes to the local officials who actually lower the taxes.

Short of tinkering with the school finance formulas and numbers, all that state lawmakers can do is make changes that affect the property tax base. They get to say how much of each kind of property is subject to property taxes. A change that increases homestead exemptions, for instance, lowers the amount of residential property subject to those locally set tax rates. In that case, homeowners pay less, and the governments collecting the taxes end up collecting relatively more from commercial and industrial taxpayers who did not get the break. Tax breaks for business property owners work in the other direction, shifting the burden to homeowners.

“Everyone is coming at it from a different angle,” said Dale Craymer, president of the Texas Taxpayers and Research Association, which advocates for businesses on tax and budget issues. “Is the problem that businesses are getting a special deal? If they are, that means homeowners are being put upon to give business tax breaks.”

Homeowners do pay a higher share of property taxes than they used to, Craymer said — the share has increased to 47.7 percent from 39.5 percent — but he blames changes in the economy rather than tax breaks for businesses. His organization figures about 5 percent of the value of business property goes untaxed, while 18 percent of residential property is exempted.

The state and most of its local school districts are tangled in litigation over funding for public education right now, which could end with the courts demanding some changes. That would give lawmakers another chance — this is not the first rodeo on school finance — to change the financing formulas in a way that affects local property taxes.

In the meantime, lawmakers are looking for ways to give homeowners — think of them as voters, too — some relief from rising property taxes that the state does not set. Watson’s proposals are an example. He wants the state to require people buying and selling homes to disclose the sales prices. It’s common in other states, but not in Texas, and similar proposals have encountered strong opposition from real estate agents and others.

Another proposal would increase homestead exemptions, lowering the amount of residential property subject to taxes and forcing the local cities and school districts to get a larger share of their property tax revenue from business taxpayers.

There is the political problem: That would only make one group of taxpayers happy.